Correlation Between Northern Lights and Alpha Architect
Can any of the company-specific risk be diversified away by investing in both Northern Lights and Alpha Architect at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northern Lights and Alpha Architect into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Lights and Alpha Architect International, you can compare the effects of market volatilities on Northern Lights and Alpha Architect and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northern Lights with a short position of Alpha Architect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Lights and Alpha Architect.
Diversification Opportunities for Northern Lights and Alpha Architect
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Northern and Alpha is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Northern Lights and Alpha Architect International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect Inte and Northern Lights is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northern Lights are associated (or correlated) with Alpha Architect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Architect Inte has no effect on the direction of Northern Lights i.e., Northern Lights and Alpha Architect go up and down completely randomly.
Pair Corralation between Northern Lights and Alpha Architect
Given the investment horizon of 90 days Northern Lights is expected to generate 0.73 times more return on investment than Alpha Architect. However, Northern Lights is 1.36 times less risky than Alpha Architect. It trades about 0.37 of its potential returns per unit of risk. Alpha Architect International is currently generating about -0.01 per unit of risk. If you would invest 3,407 in Northern Lights on September 1, 2024 and sell it today you would earn a total of 188.00 from holding Northern Lights or generate 5.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Lights vs. Alpha Architect International
Performance |
| Timeline |
| Northern Lights |
| Alpha Architect Inte |
Northern Lights and Alpha Architect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Lights and Alpha Architect
The main advantage of trading using opposite Northern Lights and Alpha Architect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Lights position performs unexpectedly, Alpha Architect can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Alpha Architect will offset losses from the drop in Alpha Architect's long position.| Northern Lights vs. Sterling Capital Focus | Northern Lights vs. Roundhill ETF Trust | Northern Lights vs. Northern Lights | Northern Lights vs. First Trust Exchange Traded |
| Alpha Architect vs. FT Vest Equity | Alpha Architect vs. Northern Lights | Alpha Architect vs. Dimensional International High | Alpha Architect vs. Matthews China Discovery |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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